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Speaking to soldiers in Ft. Bliss, Texas last week, Fed Chairman
Ben Bernanke said the Fed is "certainly falling short" of its
goal of maximum employment.

That may be the understatement of the year, according to
Christina Romer, a U.C. Berkeley professor and former chair of
President Obama's Council of Economic Advisers.

"The Fed has a dual mandate ... [and] right now it's missing both
those targets, especially the employment target by at least a
factor of two," Romer says.

"The Fed is absolutely failing terribly on the second target,"
regarding employment.

At 9%, the unemployment rate is well above what anyone would call
"full employment". On its other mandate, price stability, the Fed
is missing on the low end: it's preferred inflation rate, core
PCE, is up just 1.6% on a year-over-year basis vs. the Fed's
target of 2%.

Based on those metrics, Romer says the Fed's current policies
aren't working and believes "it's worth a try to do
something bolder and more dramatic."

Specifically, she is an advocate of the Fed targeting nominal
GDP, which is the inflation rate plus real (inflation-adjusted)
GDP. Nominal GDP is a technical term for the dollar value of
everything produced in the economy and a proxy for our collective
ability to service our debt.

"Adopting this target would mean that the Fed is making a
commitment to keep nominal G.D.P. on a sensible path,"
Romer writes in a recent NY Times op-ed. "It would work like
this: The Fed would start from some normal year — like 2007 — and
say that nominal G.D.P. should have grown at 4 1/2 percent
annually since then, and should keep growing at that pace.
Because of the recession and the unusually low inflation in 2009
and 2010, nominal G.D.P. today is about 10 percent below that
path. Adopting nominal G.D.P. targeting commits the Fed to
eliminating this gap."

In layman's terms, adopting a nominal GDP target would commit the
Fed to "taking very aggressive actions" to reignite growth and
get America's economy back to pre-crisis levels, Romer tells
Henry and me in the accompanying video.

If the mere idea of nominal GDP targeting wasn't enough to
instill confidence in the economy, Romer says the Fed could "take
other actions," including "lots more quantitative easing" and
jawboning to weaken the dollar. "If the currency were not quite
as strong we'd be exporting more, something that'd be good for
growth today," she says, repeating a viewpoint expressed here
previously.(See:
Christina Romer: A Weaker Dollar Is Good For America)